TORONTO -- A U.S. court has approved a settlement deal that would make Nortel Networks' American bondholders eligible to receive about US$1 billion in interest that has accrued since the company filed for court protection in 2009.

In the ruling issued Thursday involving so-call "post-petition" interest, Judge Kevin Gross of the U.S. Bankruptcy Court in Delaware approved a settlement deal reached in July between Nortel's American subsidiary, Nortel Networks Inc., and the most of its U.S. bondholders.

The settlement, approved over the opposition of Nortel's Canadian parent, resolves a dispute over whether bondholders holding some $4 billion of debt were entitled to post-bankruptcy interest.

The amount agreed to in the settlement was less than the US$1.6 billion that would have been owed under the bondholders' contract rate, but well above the US$90 million suggested by Nortel's Canadian monitor, which also complained that it had been excluded from the settlement discussions.

Courts in the U.S. and Canada still have yet to decide how $7.3 billion in remaining Nortel cash will be allocated among the Canadian, U.S. and European units.

Mark Zigler, a lawyer representing Nortel's Canadian pensions and former employees, suggested in an email response that Thursday's U.S. decision is likely to be appealed.

"We have the decision and are reviewing it," he said. "We expect that the monitor and Nortel Networks Ltd. (the Canadian parent company) will seek to appeal the decision as there appear to be solid grounds for appeal based on preliminary discussions we have had with U.S. counsel."

Zigler pointed out that Canadian court involved in the cross-border bankruptcy proceeding has determined there is no entitlement to post-petition interest, although he conceded that decision was also subject to appeal, in this case by the bondholders.

Meanwhile, Zigler noted that the decision did not determine how much of the $7.3 billion realized from Nortel assets would be allocated to the U.S. estate "or whether the U.S. Nortel estate is actually solvent so that bondholders can even hope to collect any post-filing interest."

"We are awaiting decisions from both the Canadian and US courts on these questions," said Zigler, of Koskie Minsky LLP.

However, in his decision, Gross noted that based on evidence and expert testimony introduced during the allocation dispute trial, "NNI could be solvent by more than $1 billion under certain allocation theories, while it is likely that the Canadian debtors will be insolvent under any allocation theory."

The ruling on the bondholder issue in the U.S. comes after a months-long cross-border court battle over Nortel's remaining assets.

Judges in Canada and the United States trying to navigate what has been described as a "tsunami" of legal arguments, dry facts and, occasionally, stormy lawyer summations over how to split up about $7.3 billion among various creditors and claimants of the collapsed Canadian technology company in Canada, the United States and Britain.

Lawyers for the U.S. arm of Nortel, Nortel Networks Inc., argue that it was "fallacy" to think of Nortel Networks as just a Canadian company, that its intellectual property was created solely in Canada, or that Nortel's business was run from Canada since its largest and most profitable business units were operated out of the United States.

One of the main sticking points for the trial that began in May had been how to divide about $4.5 billion from the sale of patents and intellectual property to a consortium of technology companies after Nortel sought creditor protection in 2009. The rest of the money came primarily from the sale of Nortel's business units, but the division of those assets has been resolved.

Three main conflicting approaches about Nortel's intellectual property have been put forward by the different arms of Nortel in Canada, the United States and United Kingdom, complicated by a number of alternative positions and shared jurisdiction over Nortel in Canada -- where it was founded and had its head office -- and the United States, which was its largest market.

Lawyers for the monitor, as well as a group representing its Canadian pensioners and former employees, have argued the Canadian company Nortel Networks Ltd. had legal title to the patents and ownership of the subsidiaries, including NNI in the United States and its European subsidiaries, including in the United Kingdom.

Lawyers for NNI and U.S. bondholders have argued that the American arm of Nortel should get a bigger proportion of the money than the monitor or Canadian creditors advocate, due to its size and importance and that the U.S. arm's creditors should be paid in full before money goes to the Canadian parent's creditors.

-- With files from The Associated Press